Report No. 32452 Romania Country Assistance Evaluation May 25, 2005 Country Evaluation and Regional Relations Operations Evaluation Department Document of the World Bank Abbreviations and Acronyms AAA Analytical and advisory activities IICCR Institutional Investor Country ASAL Agricultural sector adjustment Credit Risk loan IMF International Monetary Fund BEEPS EBRD-World Bank Business IRR Internal rate of return Environment and Enterprise MIGA Multilateral Investment Performance Survey Guarantee Agency CAE Country assistance evaluation NBR National Bank of Romania CAS Country assistance strategy OED Operations Evaluation CEEB Central Eastern European Department Countries and the Baltics OEG Operations Evaluation Group CEM Country economic memorandum OEU Operations Evaluation Unit, CY Calendar year MIGA DFI Direct Foreign Investment PAL Programmatic adjustment loan EBRD European Bank for PIBL Private Sector Institution Reconstruction and Development Building Loan ECA Europe and Central Asia PIU Project Implementation Unit EIB European Investment Bank PMU Project Management Unit ESW Economic and sector work PPIBL Private and Public Sector EU European Union Institution Building Loan FDI Foreign direct investment PSAL Programmatic structural FESAL Financial and Enterprise Sector adjustment loan Adjustment Loan PSAPT Private sector advisory and FIAS Foreign Investment Advisory privatization Service PSD Private sector development FY Fiscal year SAL Structural adjustment loan GDP Gross domestic product SDF Social development fund IBRD International Bank for TA Technical assistance Reconstruction and Development TAAS Technical assistance and advisory ID Institutional development services IDA International Development TATF Technical assistance and trust Association funds IFC International Finance Corporation XPSR Expanded project supervision IFI International financial institution report Acting Director-General, Operations Evaluation : Mr. Ajay Chhibber Acting Director, Operations Evaluation Department : Mr. R. Kyle Peters Acting Manager, OEDCR : Ms. Laurie Effron Task Manager : Mr. René Vandendries Table of Contents Preface ............................................................................................................................... i Summary of CAE Outcome Ratings ............................................................................. iii Summary.............................................................................................................................v 1. Country Background..................................................................................................1 2. The Bank’s Program and Strategy ...........................................................................4 Bank Strategy ..........................................................................................4 Outcome Ratings for Closed Projects.....................................................6 The CDF, Partnerships, and Aid Coordination......................................8 3. The Bank’s Development Impact..............................................................................9 A. Sustainable Private Sector Growth....................................................................9 A.1 Private Sector Development and Infrastructure...........................................9 Adjustment Lending Outcomes................................................................9 Investment Support Outcomes...............................................................12 Outcomes of Assistance for Infrastructure............................................13 Summary Outcome ................................................................................14 A.2 The Case of Agriculture.............................................................................16 Outcome of Agricultural Policy Support ..............................................17 Outcome of Non-adjustment Support....................................................18 Summary Outcome ................................................................................19 B. Social Sector Development................................................................................19 Overall Outcomes .................................................................................22 C. Governance and Institution Building ..............................................................22 Recent Developments ............................................................................22 Corruption Indicators ...........................................................................23 Bank Strategy ........................................................................................24 Outcome ................................................................................................24 4. Overall Outcome and Bank Performance ..............................................................27 Overall Outcome ...................................................................................27 Bank Performance.................................................................................27 5. Main Findings and Recommendations ...................................................................30 Findings ................................................................................................30 Recommendations .................................................................................30 Text Boxes Box 1.1: Romania and the EU ........................................................................................ 2 Box 2.1: IFC Operations in Romania ............................................................................. 7 Box 3.1: The Arrears Problem ...................................................................................... 15 Box 3.2: The Roma Minority ........................................................................................ 21 Text Tables Table 1.1: Romania’s Performance in Perspective............................................................ 3 Table 2.1: Composition of Bank Commitments, FY91–04 ............................................... 6 Table 3.1: List of Loans in Support of PSD and Infrastructure......................................... 9 Table 3.2: Economic Indicators, 1991–03 ....................................................................... 14 Table 3.3: EBRD Transition Indicators ........................................................................... 15 Table 3.4: List of Loans in Support of Agriculture ......................................................... 16 Table 3.5: List of Loans in Support of Social Sector Development ................................ 19 Table 4.1: Summary of Outcome Ratings by Objective.................................................. 27 Annex Annex A: Statistical Annex ..............................................................................................33 Annex B: List of People Met on Mission.........................................................................47 Annex C: Chart on Country Performance Indicators ..................................................... 53 Annex D: OED’s Country Assistance Evaluation Methodology ................................... 55 Annex E: Summary Overview of IFC Operations in Romania ...................................... 59 Annex F: Summary Overview of MIGA’s Activities in Romania ................................ 65 Annex G: Management Action Record .......................................................................... 69 Attachments Attachment 1: Government’s Comments on the Draft CAE and OED’s Response...... 71 Attachment 2: Chairman’s Summary ........................................................................... 79 i Preface This Country Assistance Evaluation (CAE) examines the relevance and efficacy of World Bank assistance to Romania. It covers the period following the fall of the Ceauşescu regime in December 1989 through 2004. Over this time, the key issue facing Romania gradually evolved from how to transition from a centrally planned to a free market economy, to how to transition from an as yet imperfectly operating market economy to European Union (EU) accession. An Operations Evaluation Department (OED) mission visited Romania and the EU in Brussels from September 13 to September 28, 2004. The mission held discussions with Government and state entity officials, business leaders, bankers, other private sector representatives, civil society, international donors and EU representatives, as well as World Bank staff. The cooperation of all interviewees is gratefully acknowledged. The mission received excellent assistance from the World Bank’s office in Bucharest in helping to arrange interviews and field trips. The report is organized as follows. Chapter 1 provides country background. Chapter 2 reviews the Bank’s strategy and its three main objectives: (1) promotion of sustainable private sector growth, through (a) an improved environment for private sector development (PSD), (b) infrastructure development, and (c) agricultural reform; (2) poverty reduction and human development through social sector initiatives; and (3) improvements in governance and institution building. Chapter 3 evaluates Bank impact in these three areas. PSD and infrastructure initiatives are discussed together because of their complementarity in impact. Agriculture is discussed separately because of the unique challenges it presents. Chapter 4 summarizes overall outcomes of the Bank’s programs, as well as Bank performance. Chapter